I have read that gofundme and other crowdfunding sites are…

I have read that gofundme...

I have read that gofundme and other crowdfunding sites are classified "gifts" and they are not taxable to the recipient. Is that true and is there a limit on the amount received? for example, if someone received a million dollars as "gifts" is any of the million dollars taxable? Also, if they then turned around and donated the million dollars to different charities, is that ok with out any tax consequences?

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Customer reply replied 9 months ago

If you can explain both federal and state tax issues that would be appreciated.

Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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The taxation depends on the use of the funds. If you are using the money to fund a business or any pursuit of profit, IRS treats this as Gross income to that business. (and state's returns start with Federal AGI, so mirrors)

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I Just helped a client who came to me after IRS re-characterized money he was treating as gifts, as income.

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No cases or IRS rulings directly address the taxability of contributions to a crowdfunding project. Accordingly, whether crowdfunding contributions received are includible in income must be determined by the application of general tax principles.

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There HAS been ONE information letter re: this from IRS.

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In the Information Letter, IRS concluded that generally, money received without an offsetting liability (such as a repayment obligation), that is neither a capital contribution to an entity in exchange for a capital interest in the entity nor a gift, is includible in income. The facts and circumstances of a particular situation must be considered to determine whether the money received in that situation is income.

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What that means is that crowdfunding revenues generally are includible in income if they are not:

1. loans that must be repaid;

2. capital contributed to an entity in exchange for an equity interest in the entity

I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice to clients on three continents since 1986

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Customer reply replied 9 months ago

Hi Lane, here is the specific example if you can please elaborate - a site is set up to receive money as a gift in order to accumulate a pool of money to then be donated to charities. 100% of the money received would go to a variety of charities. If you can be specific as possible it would be highly appreciated for both federal and state taxes.

Not if you prove that these were gifts and you simply passed through to the charities.

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But doing THAT takes away the possibility of the donors getting a tax deduction. They MUST have acknowledgement of the donation from the charity

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So sorry

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Customer reply replied 9 months ago

Thanks Lane. Your last response was somewhat helpful as I am 1000% sure I can prove the gifts were passed through to charities. The only aspect if I choose not to be a 501(c)(3) is the person gifting would not be able to have a deduction on their taxes.

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Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.